Regulatory Scrutiny Is a Sign of a Big Idea, Says One Investor

It seems like every week yet another legal or regulatory battle involving a startup like Uber or Airbnb makes headlines.

While some of these companies have folded under pressure, others continue to fight, guided by their insistence that their so-called sharing economy businesses are the wave of the future. One Silicon Valley investor agrees with the latter group of optimists and considers challenging the legal system a sign of potential success.

“If your idea isn’t big enough to warrant regulatory scrutiny, then it’s probably not big enough,” Simon Rothman, a partner at venture capital firm Greylock Partners, said on Thursday at a tech conference in San Francisco hosted by O’Reilly Media.

While some startups may be wounded by unhappy regulators—especially small businesses—Rothman insisted that scrutiny doesn’t have to mean death.

Rothman is on the board of meal delivery startup Sprig, which has been sued by a former worker for allegedly shortchanging its drivers by classifying them as contractors rather than employees. Almost two months before the lawsuit was filed in San Francisco Superior Court, Sprig announced it was converting its contractors to employee status.

Rothman’s investment firm has also backed home-sharing startup Airbnb. It too has had a history of butting heads with government.

In 2014, the company gave into New York’s attorney general and handed over data about 10,000 properties potentially listed illegally on its service. Last week, however, Airbnb successfully defeated a ballot measure in San Francisco that would have imposed stricter limits on hosts using its service to rent out their homes.

Food delivery and home-sharing aren’t the only ones to have faced regulators. Ride-hailing companies Uber and Lyft, for example, have successfully taken on regulators to create huge businesses. After tussling with the startups, California, for example, declared them legal in 2013. Of course, these companies are still facing other battles, most notably lawsuits over classifying drivers as contractors. Uber is still fighting regulators in other countries like France and South Korea, where its regular people ferrying passengers with their own cars is illegal.

Nevertheless, not all business models are a good idea just because they’re new and ruffling some feathers, Rothman added. “Just because a consumer proposition is attractive, it doesn’t mean the business model will be attractive,” he said.